TeachMeFinance.com - explain present value cost
present value cost -- the cost in currently valued dollars of funds to be expended over a period of time, usually a number of years, less the net of any funds to be repaid. It is adjusted to compensate for the loss or gain of the opportunity to invest the funds rather than spend them -- that is, compensate for the dollars' estimated earning potential in alternative uses. For example, the present value cost is reduced by the amount of income the funds are expected to earn until they are disbursed and increased to compensate for the loss of earnings thereafter, or until such time as the funds are repaid. Present value cost is used by federal regulators to estimate the impact on the thrift insurance fund of alternative solutions to troubled thrift institutions.
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